BARRE TOWN — The School Board’s plan to use a significant portion of a sizable surplus as something of a rainy day fund went out the window late last week when members huddled at an emergency meeting to make a last-minute addition to their Town Meeting Day warning.

The problem, according to Chairwoman Brenda Buzzell, is that board members belatedly learned that a strategy advocated by Superintendent John Bacon was at odds with state law.

At issue was Bacon’s recommendation that the board not follow the two-step process outlined by Business Manager Mark Lyons during a discussion of how members should handle a newly audited $925,000 surplus.

Lyons told board members they should first decide how much of the year-end fund balance to use as a source of revenue in the $10.46 million budget they will ask voters to approve in March, and then warn a separate question seeking permission to place the balance of the surplus in a fund created for the sole purposes of stabilizing taxes in future years.

“I wouldn’t recommend that,” Bacon said at the time.

Bacon worried that the course of action outlined by Lyons could backfire if voters rejected the ballot question calling for the creation of a tax stabilization fund. A “no” vote on that question, he said at the time, would, by law, commit the board to using the entire unexpended surplus to reduce the tax rate increase needed to finance its soon-to-be-voted budget proposal.

The result, according to Bacon, would be a predictable dip in the projected property tax rate this year followed by an all-but-certain sharp spike in the rate next year even if the board were somehow able to level fund spending.

Based on Bacon’s concern about the all-or-nothing aspect of the tax stabilization question, and his observation that with federal budget cuts looming the surplus could provide the board with a measure of financial flexibility that might come in handy, school directors opted to take his advice.

Last week they reversed themselves after receiving a requested update.

Acting out of what she described as an abundance of caution, Buzzell said the board asked Lyons to further explore the issue.

“When you’re spending other people’s money you want to make very sure you do it right,” she said.

According to Buzzell, Lyons consulted with the school district’s lawyer and ultimately concluded that local voters — not the School Board — must decide how to handle the surplus.

With that information in hand, Buzzell said board members agreed to add the tax stabilization question to the ballot for the March elections. Now, she said, they are hoping it passes, because while Bacon might have been wrong on the law the board shares his desire to manage the tax rate.

“We’re just trying to be fiscally responsible and have a little foresight,” she said.

The school surplus, which has accumulated over the past three years, swelled to just over $925,000 this year. Roughly $325,000 of that money is reflected as revenue in the budget voters approved nearly a year ago, and $327,500 is included as revenue in the budget that will be on the ballot in March. Assuming the tax stabilization question is approved, the balance — approximately $275,000 — would be placed in a fund that could not be tapped mid-year to cover increased expenses or revenue shortfalls. It would be available to use as revenue during the budget-building process a year from now.

School officials say federal stimulus funds that weren’t spent, coupled with a pair of unanticipated bus grants and some sound fiscal management are largely responsible for the surplus.

The board outlined its position on the tax stabilization in informational material it is circulating in the run-up to the Town Meeting Day elections.

“… The board feels that with the anticipated loss of state and federal funds as well as increased expenses, this use of the surplus will benefit taxpayers in these uncertain economic times,” the flyer states.